ETI – EMPLOYMENT TAX INCENTIVE - How does ETI work
Why was ETI created
The Employment Tax Incentive also known as ETI, has its main focus on the young South Africans who are excluded from economic activity. The lack of skills and increased labour legislation has resulted in employers being hesitant to employ younger workers. ETI looks to incentivize employers to appoint younger job seekers.
Why is ETI Important
The unemployment rate amongst the youth means they are not gaining the skills to be able to get employment and contribute to the economy in the long run. The negative effects of unemployment just compound over time, unless a solution is found to break the cycle.
What is ETI
ETI is a tax incentive that is aimed improving the employment rate amongst the youth. It helps reduce the cost of hiring young people in South Africa, as long as the employer if registered for employees tax paye. ETI was first implemented on 1 January 2014.
Employer’s benefit
The benefits to an employer who qualifies to claim ETI are:
- The cost of hiring younger people will be less as the incentive lowers the employers tax paye payable to SARS;
- Employers can claim the incentive for a period of 24 months on qualifying employees;
- The incentive differs based on the salary paid to each employee and if the employee was employed after the inception of ETI;
- The incentive complements existing programmes for example, learnerships.
Who can claim ETI
- Employers are eligible to claim ETI if:
- The Employer is registered for PAYE
- Not a government agency
- Not an entity managing public finances
- Not a municipal agency
- Has not been disqualified due to displacement of older employers
Qualifying employee
The Employer will be able to claim the incentive on qualifying Employees if:
- They have a valid SA ID, Asylum Permit or ID issued in terms of the Refugee Act
- Between the ages of 18 to 29 years old
- Is not a domestic worker
- Is not a related party to the Employer
- Was employed after 1 October 2013
- Is paid the minimum wage not exceeding R6000 (R6,500 from March 2019)
Rate of ETI - How is it calculated
ETI is based on the value of the salaries paid. If the employee has worked less than 160 hours in the month then the ETI is apportioned based on that ratio.
ETI For periods January 2014 to February 2019
For the first twelve months of employment –
- 50% x remuneration (R0-R2000)
- Fixed at R1000 (R2001 – R4000)
- Based on the formula (R4001-R6000)
Formula: X = A – (B x (C – D))
X = monthly calculated amount
A = R1000
B = 0,5
C = Monthly Remuneration
D = R4000
For the second twelve months of employment –
- 25% x remuneration (R0-R499)
- Fixed at R500 (R2001-R4000)
- Based on the formula(R4001-R6000)
Formula: X = A – (B x (C – D))
X = monthly calculated amount
A = R500
B = 0,25
C = Monthly Remuneration
D = R4000
ETI For periods from March 2019 onwards
For the first twelve months of employment –
- 50% x remuneration (R0-R1999)
- Fixed at R1000 (R2000 – R4499)
- Based on the formula (R4500-R6499)
Formula: X = A – (B x (C – D))
X = monthly calculated amount
A = R1000
B = 0,5
C = Monthly Remuneration
D = R4500
For the second twelve months of employment –
- 25% x remuneration (R0-R1999)
- Fixed at R500 (R2000-R4499)
- Based on the formula(R4500-R6499)
Formula: X = A – (B x (C – D))
X = monthly calculated amount
A = R500
B = 0,25
C = Monthly Remuneration
D = R4500
Penalties?
Penalties can be levied if:
- The Employer claims ETI for employees who earn less than the minimum wage;
- If Employees are replaced with younger employees just to qualify for the incentive.
Duration of ETI Tax incentive?
The ETI tax incentive came into effect on 1 January 2014 and will end on 28 February 2029.
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